Currencies, Emerging Markets, Metals

China Launches Its Gold Benchmark – Denominated In Yuan

Ten Thousand YuanChina, the world’s largest gold consumer, launched on Tuesday a gold benchmark denominated in Yuan and plans to exert a stronger influence in the global market by better controlling the prices. It will also serve to increase the international credibility of its currency.

The Shanghai Gold Exchange – the Chinese precious metals operator – has unveiled Tuesday, April 19 on its website its firs daily benchmark “fixing” for gold, at 256.92 Yuan per gram ($39.66, or around $1,230./oz).

Eighteen market makers are participating in the fixing of the new Shanghai benchmark, according to the operator, most of which are Chinese state-owned banks, but two are large Chinese gold groups and two are foreign banks, ANZ and Standard Chartered.

“The fixing (that started Tuesday) marks a new step in the impressive soaring of Chinese exchanges and reflects the next stage of the internationalization of China’s gold market. It is a stepping stone to a new multi-axis trading market consisting of London, New York and Shanghai and signals the continuing shift in demand from West to East,” said Aram Shishmanian, CEO of the World Gold Council, an association of the world’s leading gold producers.

“As the market expands to reflect the growing interest in gold by Chinese consumers, so too will China’s influence increase on the global gold market,” he added in an e-mail transmitted to AFP (Agence France-Presse).

Opened in 2002, the Shanghai Gold Exchange already had launched, in September 2014, an “international” exchange open to foreign financial institutions, with the avowed goal of offering an alternative to the New York and London exchanges that dominate gold trading.

China Represents One-Quarter of Global Demand

Gold demand in continental China represented 250.6 tonnes in the fourth quarter of 2015, or more than one-quarter of global demand, according to the WGC, which makes it the largest gold consumer, ahead of India. China remains also the country producing the most gold.

All the same, China depends on contracts denominated in US dollars – the benchmark currency on the international precious metals market – thus suffering setbacks with currencies amidst strong debasement of the Yuan this last year.

The global market remains largely dominated by the London Bullion Market’s fixing, where the ounce of gold closed at $1,234.30 Monday.

Growing The Use of Renminbi Worldwide

China “needed a benchmark that would reflect the fluctuations of its local market and would allow it to reduce its dependency to prices denominated in dollars,” WGC’s CEO stressed Tuesday, estimating this Shanghai fix could strongly improve liquidity in the Asian market.

Jiao Jinpu, director of the Shanghai Gold Exchange, had indicated in December at a conference that the launching of a distinct benchmark for gold was part of its efforts geared toward the institution’s internationalization and openness. In a declaration reported in the local media, he added that the exchange operator was planning to progressively launch Yuan fixings for the other precious metals (silver, platinum and palladium).

By offering precious metals contracts denominated in the Chinese currency, Beijing wishes also to reinforce the use of the renminbi in order for it to become a benchmark currency.

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